"Prime Bank" Scams

A basic adage says when something looks too good to be true, it probably is. This is particularly true with secretive investments touted for their connection with "prime banks" or "wealthy investors," with little other verifiable information being provided.

With strong recent stock market gains, many individuals are eager to take advantage of investing opportunities. Not surprisingly, an investment in "prime bank" financial instruments in which you can earn spectacular returns of 20 to 200 percent monthly on your money "risk free" can seem very attractive.

Unfortunately such investments -- supposedly debt obligations guaranteed by the world’s "top 100 banks" or "prime" banks -- cost investors tens of millions of lost dollars every year, according to state securities regulators.

That's because "prime bank notes" do not exist. They are fictitious and fraudulent instruments -- not backed or endorsed by any legitimate financial institution. Similar scams go by names such as: prime bank guarantees, prime world bank debentures, standby letters of credit, bills of exchange, bank secured trading programs or loan roll programs.

While the specifics may vary, these various scams have similar themes. Con artists typically claim only big corporations, foreign banks or ultra-wealthy investors know about these investments. In Idaho, regulators say con artists tried to lure investors by suggesting that a "Saudi oil sheik" and "the Onassis family" were poised to invest in a prime bank trading program. "They’re pitched as secret trading programs that the Rothschilds and Rockefellers set up years ago, which are only offered to the elite," Utah’s Securities Commissioner said.

Confidentiality is also stressed. According to an Idaho official, "This market is purportedly so secret that investors are told not to independently investigate the offering or risk being permanently expelled from [future participation] in these markets." Investors may be told that involved institutions or regulatory agencies will deny the existence of such investments, in an attempt by the promoters to deflect investors' concerns. Some con artists may even ask investors to sign non-disclosure agreements, since the huge profits in this "secret market" would disappear if too many people became aware of its existence.

Con artists also often tell investors that these instruments are too technical or complex for non-experts to understand. Legitimate terminology from genuine bonds or certificates of deposit may be sprinkled liberally throughout fictitious documents to lend them an air of authenticity, and the documents themselves may look very official through the wonders of desktop publishing.

Investment pitches are typically short on specifics about who is involved or where the money is going. Alternatively, perpetrators may claim invested money will finance beneficial projects such as roads and health care facilities. In fact, the stolen money often goes to mundane purposes. Utah regulators alleged a Florida man spent $50,000 raised in a prime bank scheme on a sport utility vehicle and mortgage payments.

Warning Signs of a Scam:

• Excessive "guaranteed" returns. A simple rule of investing is the higher the possible profit, the higher the risk. If anyone claims that a high yield investment has no risk or that your return from it will be guaranteed, don’t believe them.
• International or inside angle. Institutions such as the Federal Reserve, the World Bank or European government central banks do not endorse investments. Similarly, don't accept an investment's legitimacy by unsupported claims that Wall Street financiers or wealthy individuals have made similar investments.
• Lack of information. While "prime bank scams" are typically cloaked in anonymity and confidentiality, disclosure is a fundamental means of investor protection. You should be able to fully research and discuss a prospective investment, and a lack of specific or verifiable information should be a strong "red flag" warning of potential trouble.
• Technical complexity. "Prime bank scams" are often characterized as being extremely complex and too technical for average investors to comprehend. In general, it's good advice to avoid investments you don't fully understand. Otherwise, seek advice from a reputable, trusted professional and consider getting a second opinion.

How We Can Help:

The Securities Division, as well as the federal Securities and Exchange Commission, regulates how securities are sold in Connecticut. If you have questions about investments, please contact us.   We can't tell you how to invest your money.  We can, however, tell you if the person selling the investment is properly registered.

Contact the Division for answers to these questions:

• Is the seller registered/licensed to sell securities in Connecticut?
• Has written information that you received about the investment been filed in Connecticut?
• Does the investment comply with Connecticut's securities laws?